Feb. 7 (Bloomberg) -- Advanced economies are already in a "depression" and the financial crisis may deepen unless the banking system is fixed, International Monetary Fund Managing Director Dominique Strauss-Kahn said.

âThe worst cannot be ruled out,â Strauss-Kahn said in Kuala Lumpur, where he was attending a gathering of central bankers from Southeast Asia. âThereâs a lot of downside risk.â

Ten days ago, the IMF cut its world-growth estimate for this year to 0.5 percent, the weakest pace since World War II. Stimulus packages alone wonât succeed in dragging the global economy out of recession unless confidence is restored in the banking system, Strauss-Kahn said today.

âAll this will work if, and only if, the different countries are likely to do what they have to do in terms of restructuring the banking sector,â he said. âAnd today itâs not done.â

The U.S. economy has lost 3.57 million jobs since a recession started in December 2007, its biggest employment slump of any economic contraction in the postwar period as companies from Macyâs Inc. to Caterpillar Inc. cut costs. The U.K. economy will shrink this year by the most since 1946, the IMF forecasts.

âThere is hope that the fiscal and monetary stimulus measures being implemented around the world can help turn things around,â said David Cohen, Singapore-based director of Asian economic forecasting at Action Economics. âBut there is still the risk it can be short-circuited by further financial turmoil.â

$780 Billion Package

The U.S. Senate is due to vote early next week on an economic stimulus package totaling at least $780 billion that President Barack Obama said is needed to prevent the economy from sinking into a deeper recession. Asian nations from China to Singapore and India have pledged more than $685 billion on their own spending programs.

The Obama administration is considering subjecting banks to a new test to determine whether they require fresh capital injections as part of a rescue plan to be unveiled by Treasury Secretary Timothy Geithner next week, people familiar with the matter said.

Governments should be ready for âfull-fledgedâ intervention, acting quickly to sell or wind-up insolvent lenders, Strauss-Kahn said. While the European Central Bank, which left interest rates unchanged this week, may have more room to cut borrowing costs, such a policy may not be as important as restructuring the regionâs banks, he said.

Borrowing Costs

âWeâre probably not very far from the point where the question of interest rates is not the most important question,â Strauss-Kahn said. âProviding direct liquidity to the market, restructuring the banking sector, may have more influence on demand than interest rates.â

In Asia, âthereâs still room for bigger stimulus packages,â the IMF official said. Malaysia, for example, may introduce a second stimulus package larger than Novemberâs 7 billion-ringgit ($1.9 billion) plan, he said.

Developing Asia will probably expand 5.5 percent this year, the slowest pace since 1998, the IMF said in last monthâs update of its World Economic Outlook report. The region may expand 6.9 percent next year, the fund forecasts.

Asian nations will need a recovery in the global economy before the region can exit a slowdown, the IMF said this month. Strauss-Kahn said today the fundâs forecast for a recovery to start in 2010 is âvery uncertain.â

Demand for Loans

Demand for IMF loans is rising in nations suffering from weaker export sales, banking industry turmoil and deteriorating investor confidence. The organization has so far agreed to lend $47.9 billion to countries affected by the crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Ukraine and Serbia.

Strauss-Kahn said he agreed with Poland that the eastern European nation isnât in need of assistance from the fund now, but may require financial aid in the future.

The fund may collaborate with some countries to restore confidence, without necessarily providing immediate loans, the official said.

âSome need for precautionary arrangements may appear,â he said, without naming specific countries.

Critics of the fund say itâs failed to keep up with the pace of change as the worldwide recession deepens.

The IMF and similar institutions are âincapableâ of coping with the global financial crisis, because their resources canât keep up with demand, former World Bank President Paul Wolfowitz said on Feb. 4.

Russian Prime Minister Vladimir Putin has criticized the World Bank, IMF and World Trade Organization as anachronistic organizations that give no voice to emerging economies.

The IMF and the World Bank were set up at the 1944 Bretton Woods conference. The IMF was designed to prevent crises in the international monetary system and to provide financing to distressed countries.

Feb. 7 (Bloomberg) -- Advanced economies are already in a "depression" and the financial crisis may deepen unless the banking system is fixed

That's gooblespeak for throw more Trillions at the banks until the middle class is bankrupt and effectively eliminated. Putting everyone into indentured servitude is the game plan here.

The solution is rather simple but needs individuals with balls to carry it out. As the poster above mentioned, the first step is to abolish the IMF and the world bank. Second is to nationalize all the Federal Reserve banks. Third, eliminate fixed fractional banking. Banks must maintain 100% of customer deposits in liquid assets. And the final solution is to maintain a minimum level of education requirement before someone is eligible to vote.

it is difficult to define. for example is it is just a recession it will clear up soon. however if it is a depression it will last longer. therefore if it does continue then it will be a depression and would be considered a depression from when the what potentially could be classed as a recession started.

as a result you cannot call it a depression until that period which it could still be classed a recession has been exceeded. and when it is classed as a depression the depression started when the what could have been classed as a recession started.

it would suggest that the imf is stating the period when classification of recession has been surpassed. in which case that is probably correct.

Dow fell almost 90% during a 3-year decline and took almost 25 years to recover. I think it's safe to say the current economic climate isn't quite that bad and the jury is still out on whether our grandchildren will think back on 2007 as the start of THE Great Depression.

Dow fell almost 90% during a 3-year decline and took almost 25 years to recover. I think it's safe to say the current economic climate isn't quite that bad and the jury is still out on whether our grandchildren will think back on 2007 as the start of THE Great Depression.

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If it wasn't for the "stimulus" package, the Dow would likely be at around 4000 right now.

If it wasn't for the "stimulus" package, the Dow would likely be at around 4000 right now.

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Maybe. The system is reliant on confidence, and investors around the world probably needed to see the U.S. government do something, anything, even if the actual benefits were less than the perceived benefits.

That's why, despite his critics, Alan Greenspan was effective. The man inspired confidence in the system we he spoke, unlike his successor, Bernanke. Lately, when he speaks, I get an uncontrollable urge to short equities and go long bonds and gold.

Still don't see a depression, though, but I reserve the right to change my mind over the next few years.